The Wrong Kind of Entitlement Reform Could Be Worse than No Entitlement Reform

o There’s still a threat of a tax hike if big-government Republicans side with the so-called rational left in favor of a tax-increase proposal, such as Gang of Six, Simpson-Bowles, and Domenici-Rivlin.

o Republicans who accept a tax hike to get entitlement cuts will wind up with bad policy that crowds out needed reforms.

I want to focus on this last point because it is critically important, but doesn’t get much attention. Here’s what I wrote for NRO.

…many Republicans (regardless of the no-tax-hike pledge) are susceptible to a deal so long as something is being done to address entitlement costs and so long as the tax hikes are not based on class-warfare ideology. …the real challenge for fiscal conservatives is figuring out how to adopt something akin to the Ryan budget. That means no tax increases, genuine spending cuts, and real entitlement reforms (i.e., not the policies promoted by the rational Left, such as unsustainable price controls or back-door tax hikes via means testing). Sadly, there is no way for such a budget to be enacted in 2011 or 2012. And it may not happen in the four years after that. That would be both frustrating and worrisome — particularly since every year of delay brings us closer to European-style fiscal chaos. But for fiscal conservatives there is no possible compromise with either the hard Left or the rational Left. Both of those camps want bigger government. Both want higher taxes. And both oppose real entitlement reform.

To the Washington establishment, however, entitlement reform means price controls such as the infamous “doc fix.” The problem with this approach is that price controls are notoriously ineffective and politically unsustainable.

The political elite also thinks that means-testing is entitlement reform. But this policy basically means that people who save and invest during their working years wind up losing eligibility. This approach isn’t as bad as price controls, but it does impose high implicit marginal tax rates on those who save and invest, which almost certainly will have a negative impact on capital formation.

I realize that giving advice to the GOP is about as useful as sticking my arm into a garbage disposal, but the lesson of all this is that there’s no point in trying to strike a deal with Obama or congressional Democrats. Simply stated, there is no way they would agree to good policies.

Moreover, any agreement would be interpreted as a “solution” and therefore kill any chance of real reform in 2013.

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42 Responses

It’s so interesting how Reagan is held up as a great Republican. I’m too young to remember what his presidency was like, but I thought that spending and debt increased during his administration. Everything in Washington being relative, I guess he must still have been the best of modern presidents. Among modern presidents, Democrat or Republican, who has the lowest average annualized rate of inflation adjusted spending growth?

Yeah right, more government spending is wonderful as long as they’re spending on programs you favor. The USSR had a nonviable economic system that had to collapse. Perhaps Reagan sped that along, I don’t know. If Republicans are dissatisfied with the field of current presidential candidates then they should nominate Zombie Reagan!

[…] Daniels’ remarks. He focused a lot on means-testing for entitlements, but that’s the wrong way of reforming the programs. Such policies impose higher implicit marginal tax rates on people who save and invest during their […]

[…] Daniels’ remarks. He focused a lot on means-testing for entitlements, but that’s the wrong way of reforming the programs. Such policies impose higher implicit marginal tax rates on people who save and invest during their […]

[…] Daniels’ remarks. He focused a lot on means-testing for entitlements, but that’s the wrong way of reforming the programs. Such policies impose higher implicit marginal tax rates on people who save and invest during their […]

[…] in Governor Daniels’ remarks. He focused a lot on means-testing for entitlements, though that’s the wrong approach of reforming a programs. Such policies levy aloft substantial extrinsic taxation rates on people who save and deposit […]

[…] the structure of programs to promote market forces, federalism, and fiscal sustainability. The wrong kind of reform, by contrast, keeps the existing structure in place and tries to address the fiscal train wreck […]

[…] the structure of programs to promote market forces, federalism, and fiscal sustainability. The wrong kind of reform, by contrast, keeps the existing structure in place and tries to address the fiscal train wreck […]

[…] fiscal commission, which I thought was a disappointment because it endorsed higher taxes and urged sub-par entitlement changes rather than much-needed structural reforms. He also went after Grover Norquist because of the […]

[…] fiscal commission, which I thought was a disappointment because it endorsed higher taxes and urged sub-par entitlement changes rather than much-needed structural reforms. He also went after Grover Norquist because of the […]

[…] Price controls are a spectacularly foolish idea, and that’s true whether they’re imposed by thugs such as Hugo Chavez in Venezuela or bureaucrats at the Department of Health and Human Services. […]

[…] the next time a Republican wins the White House. But it has to be the right kind of reform, not means-testing, price controls, and other gimmicks designed to somehow prop up the current programs. Romney did select Paul Ryan as his running mate, […]

[…] fiscal commission, which I thought was a disappointment because it endorsed higher taxes and urged sub-par entitlement changes rather than much-needed structural reforms. He also went after Grover Norquist because of the […]

[…] the next time a Republican wins the White House. But it has to be the right kind of reform, not means-testing, price controls, and other gimmicks designed to somehow prop up the current programs. Romney did select Paul Ryan as his running mate, […]

[…] My two cents is that fiscal conservatives should argue that sequestration isn’t the ideal way to trim the burden of government spending, but that it’s the only option since President Obama is refusing to look at any alternatives unless they are based on class-warfare tax hikes and phony entitlement gimmicks. […]

[…] My two cents is that fiscal conservatives should argue that sequestration isn’t the ideal way to trim the burden of government spending, but that it’s the only option since President Obama is refusing to look at any alternatives unless they are based on class-warfare tax hikes and phony entitlement gimmicks. […]

[…] And the President obviously won’t give up on his campaign for higher taxes. I worry that he’ll trick gullible GOPers into a tax hike at some point, either as part of a Trojan Horse tax reform or as part of a budget summit that produces something like Bowles-Simposon, a package of real tax hikes and illusory entitlement reforms. […]

[…] And the President obviously won’t give up on his campaign for higher taxes. I worry that he’ll trick gullible GOPers into a tax hike at some point, either as part of a Trojan Horse tax reform or as part of a budget summit that produces something like Bowles-Simposon, a package of real tax hikes and illusory entitlement reforms. […]

[…] Moreover, the so-called entitlement reform in Bowles-Simpson wasn’t reform. It was basically a random package of means testing and price controls, and we have lots of experience showing that this approach doesn’t yield sustainable savings. […]

[…] the next time a Republican wins the White House. But it has to be the right kind of reform, not means-testing, price controls, and other gimmicks designed to somehow prop up the current programs. Romney did select Paul Ryan as his running mate, […]

[…] it’s very important to realize that not all entitlement reform is created equal. As I explained back in 2011, the left would be more than happy to impose price controls and means testing as part of a […]

[…] My two cents is that fiscal conservatives should argue that sequestration isn’t the ideal way to trim the burden of government spending, but that it’s the only option since President Obama is refusing to look at any alternatives unless they are based on class-warfare tax hikes and phony entitlement gimmicks. […]

[…] And the President obviously won’t give up on his campaign for higher taxes. I worry that he’ll trick gullible GOPers into a tax hike at some point, either as part of a Trojan Horse tax reform or as part of a budget summit that produces something like Bowles-Simposon, a package of real tax hikes and illusory entitlement reforms. […]